scholarly journals Do mergers and acquisitions increase default risk? Evidence from the European market

2019 ◽  
Vol 3 (4) ◽  
pp. 7-51
Author(s):  
Wolfgang Bessler ◽  
Hidde Steenbeek ◽  
Wim Westerman
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Market ◽  
Default Risk ◽  
Risk Model ◽  
Abnormal Returns ◽  
The United States ◽  
Data Set ◽  
Jel Codes ◽  
Valuation Effects ◽  
Potential Risks

Aim: In this study, we examine the changes in default risk of the bidder over the course of a merger or acquisition. The data set consists of 531 deals in which the acquirers are European firms. We employ a general set of determinants to analyse the change in default risk and extend the literature by providing new empirical evidence for the European capital market. Research design: Abnormal returns are analysed to provide preliminary insights into the merger induced valuation effects. All hypothesized relationships on the changes in default risk are tested via a regression analysis. We differentiate these results further by analysing which factors determine the increase in default risk. Findings: Previous research on this issue reported mixed results. The main finding of our empirical analysis is that, on average, mergers and acquisitions of European bidders significantly increase default risk during the post-merger period. Originality: This study adds to the mergers and acquisitions literature for European bidders and targets. The empirical findings suggest that some observed relationships and determinants are different in Europe than in the United States. Implications: This research introduces a default risk model that could be applied to predict bidder performance subsequent to a merger or acquisition by analysing possible changes in default risk of the bidder. It also provides some possible explanations for the average increase in default risk. This study may help practitioners to better assess the potential risks when acquiring other firms. Key words: mergers & acquisitions, abnormal returns, default risk, Europe JEL Codes: G32, G34

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

2021 ◽  
pp. 1-21
Author(s):  
Ludwig Erl ◽  
Florian Kiesel
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Market ◽  
Market Reaction ◽  
Market Performance ◽  
Abnormal Returns ◽  
Brewing Industry ◽  
Efficiency Gains ◽  
Market Values ◽  
Jel Classifications ◽  
The Capital Market

Abstract This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

scholarly journals Acquisitions of Financially Constrained Targets

2019 ◽  
pp. 1-10
Author(s):  
Maslinawati Mohamad ◽  
Surendranath Rakesh Jory ◽  
Nnamdi Madichie
Keyword(s):  
United States ◽  
Mergers And Acquisitions ◽  
Stock Returns ◽  
Abnormal Returns ◽  
The United States ◽  
Target Firm ◽  
Wealth Transfer ◽  
Stock Market Reaction ◽  
Cumulative Abnormal Returns ◽  
Acquisition Announcements

We examine the extent to which bidders’ stock returns at acquisition announcements reflect the financing needs of the target firm. Using a sample of the United States mergers and acquisitions of a period starts in 1985 and ends in 2012, we find that bidders of financially constrained targets pay lower acquisition premiums and earn higher announcement period cumulative abnormal returns than bidders of unconstrained targets. The lower premium and positive stock market reaction are both sources of value for bidders’ shareholders. Our results contrast the findings of the literature that document an insignificant wealth transfer to bidder shareholders.

scholarly journals Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions

2020 ◽  
Vol 4 (2) ◽  
pp. 41-89
Author(s):  
Wolfgang Bessler ◽  
David Kruizenga ◽  
Wim Westerman
Keyword(s):  
Stock Market ◽  
Mergers And Acquisitions ◽  
Abnormal Returns ◽  
Market Reactions ◽  
Valuation Effects ◽  
Payment Methods ◽  
Cumulative Abnormal Returns ◽  
Study Methodology ◽  
Acquisition Announcements ◽  
Stock Market Reactions

Aim: We analyze stock market reactions to merger and acquisition announcements for firms in Europe and contribute to the literature by providing empirical evidence how the decisions with respect to alternative financing sources (equity or debt) and the methods of payment (cash or stock) affect the magnitude of the valuation effects.   Research design: An event study methodology is applied to 717 M&A transactions. We analyze the size of the cumulative abnormal returns using the financing sources and payment methods and other variables as the relevant determinants.   Findings: The cumulative abnormal results suggest that target shareholders and bidder shareholders in private deals benefit from mergers and acquisitions. The effect found is centered around the announcement date, making our findings consistent with market efficiency. Debt financed deals outperform equity financed deals and cash paid M&A outperform stock paid M&As, due to information asymmetry, signaling and agency effects.   Originality: This study adds to our understanding of the relevance of the financing sources and the payment methods for mergers and acquisitions in Europe.   Implications: This study may help practitioners to better assess the valuation effects of alternative financing sources and payment methods when acquiring other firms.     JEL: G32, G34

scholarly journals The Long-Run Performance of U.S. Bidding Firms in the Post M&A Period: The Impact of Bid Type, Payment Method and Industry Specialisation

2017 ◽  
Vol 12 (2) ◽  
pp. 230 ◽  
Author(s):  
George Giannopoulos ◽  
Andrew Holt ◽  
Ehsan Khansalar ◽  
Patrick Mogoya
Keyword(s):  
Mergers And Acquisitions ◽  
Financial Services ◽  
Abnormal Returns ◽  
The United States ◽  
Industrial Sector ◽  
Payment Method ◽  
Public Firms ◽  
Services Sector ◽  
Long Run ◽  
The Impact

This study investigates how mergers and acquisitions (M&A) affect the wealth of shareholders of public firms in the United States (U.S). More specifically, it investigates whether the nature of the bid, the payment method used, and the type of M&A have implications for shareholders of U.S bidding firms. The study analyses 352 mergers and acquisitions in the U.S during the period 1999-2008, and its results indicate that bidding firms suffer significant negative buy-and-hold abnormal returns in the three years period after a M&A announcement. The results also suggest that, in the long-run, hostile bids and cash-financed bidders outperform friendly bids and stock-funded bidders, respectively. Furthermore, the study also finds that in the long-run bidder firms that focus on industry specialisation within their M&A targets significantly outperform firms that adopt a more diversified strategy. The analysis also investigates the effects of M&A specialisation/diversification in six different sectors, and finds that specialised bidders outperform diversified bidders in four sectors: consumer & basic materials, energy & utilities, communications and technology. Furthermore, bidder firms in the financial services sector perform significantly better when diversifying into other sectors, while the performance of bidder firms in the industrial sector appears unaffected by the degree of M&A specialisation or diversification.

The Effects of Information Systems Compatibility on Firm Performance following Mergers and Acquisitions

2019 ◽  
Vol 34 (2) ◽  
pp. 211-233 ◽  
Author(s):  
Uday S. Murthy ◽  
Thomas J. Smith ◽  
James D. Whitworth ◽  
Yiyang Zhang
Keyword(s):  
Information Systems ◽  
Mergers And Acquisitions ◽  
Capital Market ◽  
Erp Systems ◽  
Data Set ◽  
Market Participants ◽  
Unique Data ◽  
Management Forecast ◽  
Functional Areas ◽  
Operating Cycles

ABSTRACT This study investigates the consequences of information systems compatibility between the target and acquirer firms in the context of mergers and acquisitions (M&A). Using a unique data set of ERP implementations, we find that acquirers using the same ERP vendor as their targets exhibit shorter post-merger operating cycles and shorter post-merger audit delays relative to acquirers with different ERP vendors than their targets. In supplemental analysis, we find evidence that acquirers with the same ERP vendor as their target also exhibit more accurate management forecast guidance following the acquisition. The findings of this study should be of interest to capital market participants and managers involved in M&A activity by providing evidence about how the degree of compatibility between acquirer and target ERP systems impacts post-merger activities across different economically significant functional areas.

scholarly journals REAKSI PASAR MODAL INDONESIA TERHADAP PERISTIWA PERANG DAGANG AMERIKA SERIKAT DAN CHINA

2021 ◽  
Vol 5 (1) ◽  
pp. 50-59
Author(s):  
Yani Rahmawati ◽  
Hendra Gunawan
Keyword(s):  
United States ◽  
Capital Market ◽  
Stock Price ◽  
Abnormal Returns ◽  
Secondary Data ◽  
The United States ◽  
Wilcoxon Test ◽  
Stock Index ◽  
Significant Difference ◽  
Trade War

This research is an event study which aims to analyze the reaction of the Indonesian capital market, especially on LQ45 shares before and after political events that occur abroad. The event that became the object of observation was the trade war that occurred between the United States and China by using 12 events related to trade wars starting from 2014 to 2019, using the abnormal return indicator. The sample in this study are companies that are in the LQ45 stock index. The data used is secondary data in the form of the company's daily closing price and the Composite Stock Price Index (CSPI). The statistical test used to test the research hypothesis is the paired t-test which was tested on 11 events, and there was 1 event using the Wilcoxon test. The results showed that the trade war between the United States and China did not result in a significant difference in abnormal returns on LQ45 stocks with the observed period. So it can be said that the Indonesian capital market did not react to the 12 events of the trade war between the United States and China.

scholarly journals WHAT DRIVES MERGERS & ACQUISITIONS WAVES OF LISTED COMPANIES OF THE CHINEXT MARKET? IPO OVER-FINANCING OR STOCK OVERVALUATION

2018 ◽  
Vol 24 (4) ◽  
pp. 1499-1532 ◽  
Author(s):  
Xin Xu ◽  
Yong-jin Liang ◽  
Shun-lin Song
Keyword(s):  
Mergers And Acquisitions ◽  
Market Reaction ◽  
Abnormal Returns ◽  
Market Value ◽  
The United States ◽  
Payment Method ◽  
Cumulative Abnormal Returns ◽  
Cash Payment ◽  
The Government ◽  
Corporate Mergers And Acquisitions

A wave of mergers and acquisitions (M&A) has been consistently rising among the China’s ChiNext companies over the past years, which has drawn great attention across academia and industry. Based on the neoclassical theory and the behavioral theory, this paper explores the driving factors of M&A among Chinese ChiNext companies. Two hypotheses were put forward: one based on IPO over-financing and the other based on the market value overvaluation. IPO over-financing is specific to the Chinese capital market while market value overestimation is driven by the continuous upsurge in the ChiNext Market. Our study found that both factors account for enterprises’ mergers and acquisitions. They have far-reaching influences on such fields as acquisition probability, the size of the transaction, transaction frequency, M&A payment method and market reaction. Due to IPO over-financing, enterprises tend to carry out M&A via cash payment or cash and stock mixed payment method. Heavier IPO over-financing will increase the chance of M&A and leads to larger transaction size and higher transaction frequency. Market value overvaluation will lead to more uses of stock or cash and stock mixed payment on M&A transactions. When the company’s stock is overvalued, the company will use the overvalued equity to acquire other companies. Greater overvaluation of the market value also increases the chance of M&A and leads to a larger transaction size and higher frequency of M&A. In China, IPO over-financing rather than market value over-valuation, is the major driving factor for China’s corporate mergers and acquisitions. Further study found that the market reaction to different payment methods in mergers and acquisitions varies: it has the minimum reaction on cash payment, a larger reaction on stock payment and the greatest reaction on mixed payment. Also, the mixed payment method has the largest cumulative abnormal returns. This is different from the empirical findings in the United States and Europe. This paper provides a theoretical basis and empirical evidence for an in-depth understanding of the wave of mergers and acquisitions of Chinese ChiNext companies, and provides a basis for decision-making and policy recommendations for the government regulators and investors.

scholarly journals Do Industry Specialist Auditors Add Value in Mergers and Acquisitions?

2015 ◽  
Vol 31 (4) ◽  
pp. 1245 ◽  
Author(s):  
Ho-Young Lee ◽  
Vivek Mande ◽  
Jong Chool Park
Keyword(s):  
Stock Market ◽  
Mergers And Acquisitions ◽  
Abnormal Returns ◽  
Financial Statements ◽  
The United States ◽  
Market Returns ◽  
Stock Market Returns ◽  
Audit Firm ◽  
External Auditors ◽  
Acquiring Firms

This study examines whether the stock market returns surrounding announcements of mergers and acquisitions (M&A) are higher for acquiring firms audited by industry specialists. External auditors are uniquely positioned to provide assurance on the financial statements of their acquiring clients both before and after an acquisition. Also, an important aspect of due diligence in M&A transactions is the external auditors review of the accounting records, financial statements, internal controls and information systems of the target company. Using a sample of 4,283 M&A announcements between 1988 and 2011 in the United States of America, we report the results from our main regressions, controlling for all the bidder traits and deal characteristics. We examine incremental effect of audit firm specialization on cumulative abnormal returns. We also measure the effect of audit firm industry specialization in a reduced sample of 3,946 acquisitions after removing all non-Big N auditors. We use Heckmans (1979) two-step procedure to ensure that announcement period return to the size of the audit firm is not driven by the determinants related to auditor choice. Consistent with the idea that industry specialists provide higher quality assurance and possibly superior M&A advisory services, we find that the stock market returns are higher when acquiring firms are audited by industry specialists.

scholarly journals Acquisitions of Financially Constrained Targets.

2018 ◽  
pp. 868-877
Author(s):  
Maslinawati Mohamad ◽  
Surendranath Rakesh Jory ◽  
Nnamdi Madichie
Keyword(s):  
United States ◽  
Mergers And Acquisitions ◽  
Stock Returns ◽  
Abnormal Returns ◽  
The United States ◽  
Target Firm ◽  
Wealth Transfer ◽  
Stock Market Reaction ◽  
Cumulative Abnormal Returns ◽  
Acquisition Announcements

We examine the extent to which bidders’ stock returns at acquisition announcements reflect the financing needs of the target firm. Using a sample of the United States mergers and acquisitions of a period starts in 1985 and ends in 2012, we find that bidders of financially constrained targets pay lower acquisition premiums and earn higher announcement period cumulative abnormal returns than bidders of unconstrained targets. The lower premium and positive stock market reaction are both sources of value for bidders’ shareholders. Our results contrast the findings of the literature that document an insignificant wealth transfer to bidder shareholders.

The Determinants of Merger Withdrawals’ Abnormal Returns in The Australian Market

2015 ◽  
pp. 89-110 ◽  
Author(s):  
Thuy Nguyen Thu ◽  
Giang Dao Thi Thu ◽  
Hoang Truong Huy
Keyword(s):  
Financial Crisis ◽  
Event Study ◽  
Abnormal Returns ◽  
Market Response ◽  
Crisis Period ◽  
Valuation Effects ◽  
Event Study Method ◽  
Private And Public ◽  
Method Of Payment ◽  
The Impact

This paper examines the abnormal returns in merger withdrawals in Australia, especially distinguishing the market response between private and public targets. We also study the determinants of those abnormal returns, including the method of payment and the impact of financial crisis periods. Using the event study method, we document that in the Australian context, the announced withdrawal of mergers involving private targets creates significantly negative valuation effects in comparison with the valuation effects in withdrawal of mergers involving public targets. We also find that a financial crisis period strongly affects abnormal returns of merger withdrawals. However, the method of payment does not have any impact on the abnormal returns.

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